Centralized drug procurement is a contentious issue that demands a nuanced editorial analysis. On the one hand, proponents argue that a centralized approach can streamline the drug supply chain, leading to cost savings, efficient distribution, and better negotiation power with pharmaceutical companies. This could potentially result in increased accessibility to essential medicines, especially in resource-constrained regions. However, critics raise concerns about the potential for bureaucratic inefficiencies, delays in procurement processes, and a one-size-fits-all approach that may not cater to the diverse healthcare needs of different regions. Striking a balance between centralized procurement and the flexibility required for local healthcare systems is crucial. The editorial should delve into the experiences of countries that have adopted centralized drug procurement, weighing the benefits against the challenges to provide a comprehensive understanding of this complex issue.
Tag: GS Paper – 2: Health; Government Policies & Interventions.
Exam View:
Pooled buyer model for drug procurement; Issues with drug procurement in India; Success of pooled procurement in India.
Context:
Pooled procurement by the central government when it comes to drug procurement can revolutionise the health-care system in India.
Decoding the editorial: Pooled buyer model for drug procurement
- Pooled procurement, also known as collective procurement or group purchasing, refers to a procurement strategy in which multiple organisations, typically from the public or private sector, come together to jointly purchase goods or services.
- A recent paper, “A National Cancer Grid pooled procurement initiative, India”, demonstrates the viability of such a model.
- Group negotiation, uniform contracts, and, finally, purchases by hospitals associated with the National Cancer Grid for 40 drugs resulted in savings of ₹13.2 billion.
- Without pooled procurement, the cost would have been ₹15.6 billion, with savings ranging from between 23% to 99%.
- This study reveals the advantages of group negotiation in pooled procurement for high-value medicines.
Issues with drug procurement in India
Price inefficiency:
- The Central Government chooses to ignore the pooled buyer model when it comes to schemes such as the Central Government Health Scheme (CGHS), the Pradhan Mantri Jan Arogya Yojna (PMJAY) and the Employees’ State Insurance Scheme (ESI).
- This means that each government authority or hospital has to negotiate with suppliers individually, resulting in higher prices, lower quality and stock-outs.
- Corporate hospital chains follow the pooled procurement model.
- For years on end, they have conducted direct negotiations with pharmaceutical companies, and availed of significant discounts.
Inconsistent coverage:
- The government is not consistent in how it covers different categories of beneficiaries under the CGHS, ESI and PMJAY. The same procedure, for example, might be available in one scheme, but not the other.
Quality concerns:
- With every authority or hospital fending for itself, there is a lack of centralised quality control.
Stock-outs:
- Since there is no centralised pool of resources, lack of inventory in one hospital could lead to its stock-out.
- Inventory stock-outs can be a nightmare with large scale loss of lives.
Many countries and international organisations (including McDonald’s) have shown that a pooled buyer model for drug procurement addresses many such issues.
Success of pooled procurement in India
- When the government (through the National Aids Control Organization) procures male contraceptives, it invites tenders from private manufacturers and then offers to buy from all those who are willing to match the lowest price.
- HLL Lifecare Ltd., a public sector unit (PSU), with the highest manufacturing capacity in India, provides a benchmark price.
- All the bidders know that if they are not competitive on price, the government will just procure all its requirements from HLL and they will be left with unused manufacturing capacity, and as a result, face huge fixed costs and overheads.
- The government can follow the pooled buyer model for most of the drugs it procures.
Price efficiency:
- It has many pharma PSUs that can provide benchmark prices and also ensure that the government has leverage.
- Such leverage ensures that the government is not forced to buy from private manufacturers, given that there is competition from PSUs which can make supplies at a competitive price.
The issue of better quality:
- Buyers’ clubs can ensure better quality by having the supplies tested independently rather than having to rely on the drug regulator to ensure quality.
Centralised procurement, or pooled procurement, is a simple yet powerful idea that has the power and the potential to reduce costs, ensure better deployment of funds in other areas related to health care, and ensure availability of life-saving drugs in this country.
Frequently Asked Questions (FAQs)
1. What is centralized drug procurement?
Answer: Centralized drug procurement refers to a system where a single authority or agency, usually at the national or regional level, is responsible for acquiring pharmaceuticals on behalf of multiple healthcare entities. This approach is aimed at optimizing the drug supply chain and achieving cost-effective and efficient procurement processes.
2. What are the potential benefits of centralized drug procurement?
Answer: Centralized drug procurement offers several advantages, including cost savings through bulk purchasing, increased negotiation power with pharmaceutical companies, streamlined distribution, and improved inventory management. It can also enhance transparency and accountability in the procurement process.
3. How does centralized drug procurement impact healthcare accessibility?
Answer: Proponents argue that centralized procurement can enhance accessibility by ensuring a more equitable distribution of medicines. By consolidating purchasing power, the central authority can negotiate better prices, making essential drugs more affordable and available, particularly in underserved or economically challenged regions.
4. What are the challenges associated with centralized drug procurement?
Answer: Challenges include potential bureaucratic inefficiencies, delays in procurement processes, and the risk of a one-size-fits-all approach that may not address the unique healthcare needs of different regions. Additionally, adaptability to local contexts and unforeseen market dynamics can be compromised in a centralized system.
5. Are there examples of countries successfully implementing centralized drug procurement?
Answer: Yes, several countries have successfully adopted centralized drug procurement models. For instance, countries like Sweden, the United Kingdom, and New Zealand have demonstrated positive outcomes in terms of cost savings, improved efficiency, and increased access to essential medicines. However, the success of centralized procurement depends on the specific healthcare context and effective implementation strategies.
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